BIRLA SUNLIFE FRONTLINE EQUITY FUND

Leading From The Front
With risk controls well in place, this large-cap-oriented fund needs to be on your buy list to gain as and when market recovers.
The markets are in doldrums. Economies, global as well as the Indian, have slowed down and estimates for corporate earnings look bleak for near to medium term. Although there is talk of recovery in the markets, it’s uncertain when it will happen. Also, instead of waiting for the markets to fall further and thereby trying to time entry points, Outlook Money has always advocated a staggered approach to investing. When markets move upwards, large-cap stocks are expected to be the early gainers. A large-cap fund that merits a place in your portfolio is Birla Sun Life Frontline Equity Fund (BFE).

Launched on 30 August 2002, BFE is an open-ended diversified fund with major exposure to large-cap stocks. The fund is benchmarked to BSE 200 spanning across leading sectors and keeping the exposure well diversified.

Performance. One of the things that a better managed fund does is limit the fall in its NAV. BFE is one such fund that has not only delivered when the going was good but also limited the damage during bad times. Last six months have seen BSE 200’s value erode nearly 46.90 per cent. BFE scores high on containing risk. It has superior risk-adjusted return and has managed to limit its fall by about 38.97 per cent during the same period. The outperformance, says the fund manager, is largely due to better stock selection and avoiding weaker companies that are over-diversified.

BFE has been a long-time performer and has outperformed its benchmark index over all time periods and since inception. As on 31 October 2008, when the BSE 200 was able to manage a compounded annualised return of 4.65 per cent over 3-year period, BFE has managed 11.29 per cent compounded returns. Not bad considering the present extraordinary situation that is seeing sharp corrections and massive fallouts of NAVs in a small time frame. Also, the fund has managed to deliver what equity as an asset class is expected to deliver over this time frame.

Portfolio. As on 30 September 2008, the fund had a corpus of about Rs 400 crore with 63 per cent invested in large caps while 10 per cent in mid caps. In September 2007, the figures stood at 75 per cent and 20 per cent, respectively. By trimming exposure in large- and mid-caps, BFE has opted to increase its cash levels throughout 2008. From nil (including money market funds) in September 2007, the cash level went up to 15 per cent by May 2008 and to 21 per cent by September 2008.

Over the last one year, exposure to Reliance Industries, Bharti Airtel and ONGC have been upped. The top 10 scrips form almost 50 per cent of the equity portfolio and hence their performance will largely shape the fund’s performance. An upward move in the market is expected to be largely on the back of large-cap stocks.

One fallout of the recent meltdown has been that few sectors have been fully dropped from the fund manager’s portfolios or exposure in them has been heavily pared. With BFE, banking, petroleum and telecom are the preferred sectors as of now while construction and capital goods are two sectors where the fund looks to prune its exposure.

Even when many stocks are available at attractive valuations now, BFE’s fund manager still prefers to stick to companies with growth potential available at reasonable valuations.

Long-term investors of the fund have benefited and with low valuations as of now, the time to enter the market with long-term view could be around the present levels. BFE has been able to deliver returns higher than or in tandem with the market and keep its risk levels in check. Over longer periods, it has beaten the benchmark by a wide margin. Choose the systematic route to widen the gains over the long term.




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